News & Insights

Advice Note to the Public Sector

The term ‘Blue Chip’ has long been recognised as a term for large companies that are perceived as a more reliable and secure investment. The failure of Carillion, the UK’s second largest Construction and Support Services Company dispels this myth.

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The term ‘Blue Chip’ has long been recognised as a term for large companies that are perceived as a more reliable and secure investment. The failure of Carillion, the UK’s second largest Construction and Support Services Company dispels this myth and will test the business resilience of many public sector organisations.

Unfortunately, whilst Carillion’s demise has been a surprise to many, it clearly demonstrates the risks and uncertainty in the UK and Global economy where additional high profile names which supply services to the public sector are also facing uncertain futures. Whilst the known risks should be a concern, there are also likely to be many more businesses in distress and struggling to survive, and whose cash flow constraints and debt burden are not yet evident.

Carillion was one of the UK’s largest companies employing 20,000 people in the UK (43,000 globally) and was a business that on July 14th 2017 was shown as having a market value of £1.4bn. Yet only 7 months later it has collapsed and gone into liquidation, leaving around 30,000 associated businesses with little or no chance of being paid the monies owed to them, unless they were insured.

The potential impact of the so called “domino” effect of Carillion’s collapse cannot be under-estimated. Recent experience shows that when other big contractors have failed, around 18% of direct suppliers have not survived the next 5 years in addition to many third and fourth tier suppliers also struggling or failing to survive.